Crisis Management: Unplanned Executive Transition

From Scandal to Stability: Navigating an Unplanned Executive Transition

With the momentum of the #MeToo movement, there has been significant attention generated on the removal of executives alleged to have engaged in inappropriate or predatory behavior.

High-profile public departures across retail, media and film, banking and the culinary world have garnered scrutiny in media and the wider zeitgeist.

But what about the companies these former executives leave behind? Internal investigations and swift public action are certainly key components of a response, but what are the key elements in successfully handling the immediate departure of a high-profile chief executive?

Public personal scandals like sexual harassment are just one company challenge that can spur an unplanned executive change. FTI Consulting conducted a survey of investors and employees to understand their perspectives on these challenging moments, and found that the situations that cause the greatest investor concern are also those that companies struggle the most to navigate.

In fact, investors believe companies successfully manage the most concerning sources of unplanned transitions well under 50% of the time.

  1. Corporate malfeasance – 37% successful
    2. Regulatory investigation – 43% successful
    3. Public personal scandal – 44% successful
    4. Sudden departure to a competitor or new opportunity – 48% successful

Investors are likely most concerned by these types of transitions because the greatest value—and even the company’s very license to operate—is on the line. And in the current environment, that value is more at risk than ever.

Take, for instance, recent management upheaval in the tech startup space. Reports of a toxic workplace culture that varies from sexual harassment to intellectual property lawsuits to changing federal regulations have all resulted in leadership changes at high-profile companies.

These issues touch on the most concerning transition for investors and can engulf a company and its leadership. These concerns are top of mind for investors—and the Boards who report to them aren’t afraid to act on them, including removing a CEO.

But there are clear communications strategies a company can employ to mitigate risk and manage through a sudden executive departure. Our research identified the primary factors critical to a company’s success:

  1. Communicate a clear line of succession: With any sudden departure, regardless of whether a company has a succession plan on the shelf, it is vital to explain to stakeholders who is in charge. An interim appointment (which more than 80% of investors and employees expect) can help smooth a period of uncertainty while the company searches for a permanent leader.
  2. Affirm business continuity: Especially during uncertain times, employees and investors alike are keenly focused on keeping the business running. While delivering information is critical, it should not get in the way of operational execution. During instances of unplanned management change, companies should emphasize business-as-usual messaging both internally and externally.
  3. Manage morale of the employee base and senior leadership: Employees are the most important audience in an executive transition. Supporting both those most impacted by the change and those who are merely concerned by it can go a long way to maintaining business continuity. This is particularly important where an ongoing investigation may occur—of notable importance in situations of malfeasance or sexual harassment.

In our research, we found that employees and investors surprisingly had a lot in common. Both identified a company’s employee base as the most important audience, followed by investors, customers, suppliers/partners, and regulators. This highlights the focus on business continuity: the most important audiences are those that keep the business running, buying and supplying materials, and ensuring its license to operate.

Perhaps, surprisingly to some in the public and investor relations fields, media and sell-side analysts are relatively low priorities in times of executive upheaval. Reporters may be swarming to get a quote, and can be a tool for delivering key information. However, investors and employees alike expect to hear from the company first-hand.

In addition to delivering your message in times of management upheaval, strategic interaction with the media can also help companies not facing these issues build their reputations ahead of unforeseen events. Proactive efforts include companies changing the criteria by which they judge potential chief executives. Quoted in The Wall Street Journal recently, Allergan CEO Brent Saunders noted, “As board members, we have to put our own elbow grease and time into thoroughly checking out the character of any CEO we hire…Reputation management is becoming an increasingly important component of the valuation of a business.”

Indeed, reputation is more important than ever. Moments of change can demonstrably risk reputation and the company’s associated value, particularly high-profile events where all the facts may not be known. No doubt there will continue to be unplanned departures across companies, whether from the renewed focus on ethical behavior or more ordinary course reasons like shareholder activism or sudden illness. Regardless of the circumstances, companies facing the unplanned exit of a leader should be prepared to engage all stakeholders, underscoring a clear message of continuity and the plan to move forward.

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Rachel Chesley is a Director in the Strategic Communications segment at FTI Consulting. She provides counsel to clients in complex business situations such as transactions, restructuring, executive transitions, litigation, and crisis.

www.odwyerpr.com/story/public/10328/2018-03-14/from-scandal-stability-navigating-an-unplanned-executive-transition.html Originally published: 14 March 2018